Debt settlement and debt consolidation rarely work in favor of consumers. There is no guarantee that they will work. So how does it work? Basically, debt settlement and consolidation companies have you pay them to settle your debts for you. They have no special bargaining powers or authority to make your creditors settle. If a creditor does not want to settle, they can simply refuse, keep charging you late fees and interest, while you keep paying the settlement company to basically do nothing.
Bankruptcy gives you protection under the law. After your case is filed, the Federal Bankruptcy Court issues an Automatic Stay, which grants automatic and immediate protection from your creditors. From there on out, your debts are handled under court supervision and creditors cannot continue to charge late fees or interest.
Liz Weston from NerdWallet wrote a great article detailing why debt settlement and debt consolidation are BAD alternatives to bankruptcy, how they hurt you more in the long term.
